U.K. Stocks Climb on U.S. Budget Talks; Rio Tinto Rallies

U.K. stocks climbed, sending the
benchmark FTSE 100 (UKX) Index to a three-week high, amid optimism
U.S. lawmakers will reach an agreement on budget talks to avert
the fiscal cliff.

Rio Tinto Group jumped 5.1 percent after the mining company
announced a $5 billion savings plan. Burberry Group Plc rose 3.4
percent as newspapers cited bid speculation as a reason for a
rally in the retailer’s shares. Invensys Plc (ISYS) rallied 8.9 percent
after the sale of its rail unit to Siemens AG sparked
speculation the company may become a takeover target.

The FTSE 100 gained 67.02, or 1.2 percent, to 5,870.3 at
the close in London. The gauge erased losses in the final hour
of trading yesterday after U.S. Speaker of the House John
Boehner, a Republican, said he is “optimistic” budget talks
with President Barack Obama will continue. The FTSE All-Share
Index advanced 1.1 percent today, while Ireland’s ISEQ Index
added 0.9 percent.

“Stocks are playing catch-up with the U.S.,” said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers in
London. “The market is hanging on every word from key U.S.
politicians and that isn’t going to change in the near future.”

The FTSE 100 had lost as much as 4.8 percent in the days
following Nov. 6 after U.S. President BarackObama’s re-election
set up a showdown with the Republican-controlled House over the
budget. The measure rallied 3.8 percent last week.

Christmas Deadline

Obama yesterday said that Democrats and Republicans can
agree on a framework for a budget deal to prevent $607 billion
of automatic tax increases and spending cuts from coming into
effect in January.

“My hope is to get this done before Christmas,” he said
at the White House.

Treasury Secretary Timothy F. Geithner meets today with
congressional leaders after Boehner also said yesterday that he
is optimistic officials can “avert this crisis sooner rather
than later.”

Rio Tinto led a gauge of metal producers higher, climbing
5.1 percent to 3,090 pence, the biggest increase since Sept. 14.
The world’s second-largest mining company said it plans to save
$5 billion by cutting operating and support costs while
simultaneously boosting production at its iron ore, copper and
alumina units.

‘Tough Action’

“We are taking further tough action to roll back the
unsustainable cost increases of the past few years,” Tom Albanese, Rio Tinto’s chief executive officer, said in a
statement today. “Our two most challenged businesses are
aluminum and coal, and in particular Australian coal,” he later
told reporters in Sydney.

Rio Tinto joins mining companies including BHP Billiton
Ltd. (BHP) in seeking cost savings as well as curbing investment on
new projects as metal demand wanes.

Burberry (BRBY), the U.K.’s largest luxury-goods maker, gained 3.4
percent to 1,317 pence, the highest price since Sept. 10, as
London-based newspapers including the Independent and the
Telegraph cited bid speculation for recent gains in the
company’s shares. The reports didn’t cite anyone.

The short interest on Burberry, which has rallied 5.7
percent so far this week, stands at 2 percent of shares
outstanding, according to Markit as of Nov. 27. That compares
with an average of 1.5 percent for all companies on the FTSE
All-Share Index, the data shows.

Invensys’ Future

Invensys rallied 8.9 percent to 305 pence, extending
yesterday’s 27 percent advance. Today’s close was the highest
price for the stock since July 2011. The U.K. engineering
company agreed to sell its rail-signaling unit to Siemens AG for
1.74 billion pounds ($2.79 billion). Invensys may now be broken
up, analysts said.

“It may be only be a matter of time before Invensys is
acquired once the sale to Siemens is completed,” said Andrew Carter, London-based analyst at RBC Capital. Proceeds from the
disposal will ease the London-based company’s pension deficit,
thereby removing a buy-out hurdle, he said.

Smiths Group Plc (SMIN), which has a pension deficit of 3 billion
pounds, increased 2.4 percent to 1,091 pence. Smith’s CEO Philip
Bowman said in June that the company was planning to take a more
“active” approach to acquisitions and disposals in the coming
three years.

Takeover Target

Man Group Plc (EMG) increased 3.6 percent to 76.55 pence,
climbing for a second day. The Daily Mail speculated in its
market report late yesterday that the hedge-fund manager could
become a takeover target. The short interest on Man Group stands
at 3.37 percent of shares outstanding, according to Markit.

Persimmon (PSN) Plc led homebuilders higher, rallying 3.2 percent
to 796.5 pence as HSBC Holdings Plc raised its recommendation
for the industry in the U.K. to overweight, meaning investors
should own more shares than represented in benchmark indexes.

HSBC upgraded Persimmon, the U.K.’s largest homebuilder by
market value, to overweight from neutral and raised its price
estimate for the shares by 27 percent to 975 pence.

“We think sales rates, pricing, margins and return on
capital will all beat market expectations in 2013” across the
industry, analysts including Jeff Davis said in a note.

Stake Sale

John Wood Group Plc (WG/) slid 4.3 percent to 780 pence. The
company’s founding shareholders sold a 4.4 percent stake. Credit
Suisse Group AG and JPMorgan Chase & Co. sold 16.4 million
shares, on behalf of the Wood family, for 775 pence apiece,
according to the statement. The shares were offered between 770
to 780 pence each, according to the terms obtained by Bloomberg
News.

Kingfisher Plc (KGF) slid 0.6 percent to 279 pence after Europe’s
largest home-improvement retailer reported a 5.9 percent decline
in so-called retail profit for the third quarter to 257 million
pounds.

That missed the average analyst estimate of 259 million
pounds, according to a Bloomberg survey. Sales at U.K. and
Ireland stores open at least a year fell 3.8 percent, while
revenue in France lost 2.8 percent.